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Fighting global inequality with Islamic finance

Fighting global inequality with Islamic finance

A January 2017 report issued by Oxfam found that the eight richest individuals in the world have a net wealth of $426 billion–equivalent to the total amount of wealth held by the poorest 50% of the global population (some 3.7 billion people). That same report found that the world’s 10 largest corporations together have revenue greater than that of the 180 poorest countries combined. Not included in the report is the similarly deplorable statistic that nearly 25% of the 1.6 billion Muslims globally live in extreme poverty. While tools like zakat — which requires Muslims to give 2.5% of their wealth each year to help those in need — are vital in the struggle to mitigate the effects of inequality, we can sometimes overlook the potential of faith-based solutions to address the root causes of inequality as well. One of the most significant of these causes — the lack of financial inclusion — can be effectively addressed through access to Islamic banking. Only 10-15% of adults in Muslim-majority countries in Sub-Saharan Africa and Central, South, and Southeast Asia have bank accounts. Greater access to formal financial services like Islamic banking could help alleviate the structural poverty in these regions and

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Turkey’s failed coup creates an unlikely winner: Islamic banking

As the Turkish people pick up the pieces following the attempted military takeover of their government on June 15, speculation about the country’s economic future is rampant. From a slump in capital and credit markets to a downgrade in the country’s sovereign credit rating, many pundits are bearish about the long-term prospects for the republic. At least one sector, however, is standing strong after the coup attempt: Islamic banking. As a dual financial system that practices both conventional and Islamic finance, Turkey was introduced to Islamic lenders (or “participation banks,” as they’re known there) at the end of 1980s, and the sector grew rapidly by the beginning of the 2000s. In 2005, the Islamist-oriented government officially recognized them and offered state guarantees on deposits, attracting interest from religious depositors and nearly doubling the industry’s market share by 2013. Growth over the last few years has also been compelling. The Participation Banks Association of Turkey reveals that total assets in five Turkish Islamic lenders grew to 120.3 billion Turkish lira ($33.6 billion) in 2015, an increase of more than 15% from the previous year. And there is more room for expansion, considering the size of Islamic lenders as compared to the

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Don’t break up the big banks. Give Islamic banking a try.

Recently appointed Minneapolis Federal Reserve President Neel Kashkari stunned the banking industry after a recent speech in which he advocated breaking up “too big to fail” banks. In remarks at the Brookings Institution in mid-February, Kashkari said the “biggest banks are still too big to fail and continue to pose a significant, ongoing risk to our economy.” One solution he proposes is to break up large banks into smaller, less influential entities. He also suggests turning the large banks into public utilities by forcing them to hold so much capital that they are almost guaranteed to remain solvent. The goal seems to be greater access to capital with less risk of a financial collapse like we saw in 2008-09. While these ideas have merit, Kashkari didn’t mention one option that could arguably result in the greatest social good: Islamic banking. If he’s interested in a banking system that works for everyone and an alternative that can co-exist within our current regulatory regime alongside cooperatives like credit unions, it’s an idea worth considering. Here’s why. The public perception of the finance industry in general is that it only exists to benefit the rich. Islamic banking requires financial institutions to have an

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